Cascade: No. 74, Spring/Summer 2010

Steps Toward a Clean Energy Recovery

Editor’s note: Stockton Williams wrote this article while at Living Cities, a nonprofit with offices in New York and Washington, D.C.

Currently, clean energy economic activity represents a tiny fraction of gross domestic product (GDP), although it is growing much faster than the current fossil-fuel economy. A report by the Pew Charitable Trusts found that while traditional jobs grew by only 3.7 percent between 1998 and 2007, jobs in the clean energy economy grew at a rate of 9.1 percent.1 At the same time, there is a strong consensus that America’s future global economic leadership and national security will depend heavily on the extent to which the country addresses the challenges  and seizes the opportunities  associated with climate change and an unsustainable reliance on fossil-fuel energy.

The New Jersey Housing and Mortgage Financing Agency developed Kent Avenue Senior Apartments in Pennsville, NJ, with a solar rooftop system prior to the inception of the agency’s new financing facility for construction of solar energy installations. The solar energy system was sized to meet 70 percent of the common area electric demand, reducing nonrenewable energy consumption and operating costs. The 101-unit moderate-income development also features an innovative energy conservation heating system.

The rationale for green investments is not limited to the benefits from reducing greenhouse gas emissions or reliance on unstable regions around the world. A wide range of research has shown that clean energy generates substantial economic gains. A widely cited study by McKinsey and Company determined that the U.S. economy has the potential to reduce annual nontransportation energy consumption by roughly 23 percent by 2020, saving more than $1.2 trillion in waste, for an upfront investment of $520 billion.2

Other studies have found that clean energy creates more jobs and higher paying jobs than those associated with fossil-fuel energy. One analysis found that $1 billion invested in a power plant creates 870 jobs compared with 1,700 in solar photovoltaics3 and 6,000 in building retrofits.4

The environmental and economic benefits of green investments can also be seen at the community level. A study of a low-income Philadelphia neighborhood by the University of Pennsylvania examined 200,000 sales for the period 1980 to 2005 and noted significant economic benefits from green investments. For example, the study found that investment in horticultural treatments to a sidewalk or roadway that improved appearance (while helping cut pollution and mitigate storm water runoff) increased surrounding home values about 28 percent relative to similar homes in comparable areas without streetscape improvements.5

It is not surprising to see financial institutions starting to capitalize on the benefits of a clean energy economy. Citi has helped the state of Delaware launch a “sustainable energy utility” (SEU) that turns that traditional utility business model on its head. Unlike typical utilities, which make more money from selling more energy (generally without regard to its source), the SEU is designed to be financially sustainable by offering products that reduce energy use and deliver energy when needed from cleaner sources. One of the SEU’s first products is low-cost financing to enable schools to make energy retrofits. SEU, working with Citi, will use municipal bonds to fund the retrofit improvements and a contractual guarantee on the loan repayments from future energy savings in the schools. The city of Philadelphia is considering creating a similar entity to the Delaware SEU.6

The New Jersey Housing and Mortgage Finance Agency (NJHMFA) is using federal economic recovery funds to seed an innovative financing facility for solar power in low-income rental apartments. The agency is offering zero interest loans for the construction of solar energy installations on affordable low- and moderate-income multifamily buildings with NJHMFA mortgages or in the NJHMFA portfolio. Solar energy systems will be appropriately sized, and the solar renewable energy certificates (SRECs) that are generated from each system will be used to repay the loan. SRECs are tradable certificates that represent the clean energy benefits of electricity generated from the solar electric system and are sold or traded for value.7 The revenue from these certificates will establish a revolving funding program at the agency to support additional solar energy projects at its residential properties.

To be sure, these efforts by banks and public agencies represent a very small share of overall capital investment. As noted above, the clean energy economy itself is at a nascent stage. To a significant extent, public policy  at the federal, state, and local levels  will play a critical role in determining the pace and scale of an acceleration to a new economic paradigm for the country. Observers from all points on the ideological spectrum see that not as a matter of “whether,” but “when” and “how.” Banks and other private and public institutions that are in the game now will have the best opportunities to help answer those questions for their shareholders, their communities, and the nation.

6 In the spring of 2010, Philadelphia’s City Council passed an ordinance creating an energy authority. The Mayor’s Office of Transportation and Utilities views the major advantage of an authority as the ability to enter into long-term contracts for alternative energy projects, such as solar or wind power, or long-term energy service company (ESCO) agreements to upgrade city buildings with energy-efficiency features. For information, contact Andrew Stober, director of strategic initiatives, Mayor’s Office of Transportation and Utilities, City of Philadelphia, at 215-686-8158 or andrew.stober@phila.gov.